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New report: 'Recession Sparks Innovation'

Production Services NetworkThe economic crisis has forced business leaders to make tough strategic decisions but has also sparked more innovative ways of working, the preliminary findings of a new report reveal.

Preliminary findings in an oil and gas industry research project, 'Riding the Rapids', reveal some companies are using the recession to strip back excess and trim payrolls but benefits include defining better ways of doing business.

The report, commissioned by PSN and McGrigors LLP, and led by Professor Rita Marcella of Aberdeen Business School at The Robert Gordon University, is based on interviews with CEOs and directors from major oil and gas operators and contractors in the UK, USA and Canada.

Professor Marcella, Dean of Aberdeen Business School, said: "Current economic challenges are encouraging senior management to review the slack that inevitably accumulates in a boom period and are re-examining the extent to which activity adds to the delivery of core strategic objectives.

In management terms this is a critically important function in good times and bad, and is supported by the growing conviction that non executive directors should take a more sceptical role in challenging organisational decision making. Findings are still emerging and it will be fascinating to consider the completed report next month.

Commenting on emerging themes in 'Riding the Rapids', Duncan Skinner, PSN's Chief Financial Officer, said: "PSN is particularly resilient in tough economic conditions as our focus is on improving the operation of existing developments, not on the oil price dependent business of exploiting new oil and gas fields.

"Despite this relatively sheltered position, our conversations with our customers have undoubtedly shifted from production optimisation to cost optimisation. This is a time of challenge and change as customers call for economies, resources are constrained and companies fight for survival.

"But economic challenges spark better, more effective ways of working. It is important that our industry doesn't waste this recession and its opportunities to work more innovatively and efficiently. PSN has created a new business improvement team to do just that.

"One participant in this important study said: 'a slump doesn't make a lot of difference. You should be running your company efficiently at all times. The [same business] rules apply in good and bad times'. As the recession re-focuses industry strategy and practice on what really matters, I couldn't agree more."

Bob Ruddiman, head of McGrigors energy practice, said: "We are seeing a running down of capital expenditure with the knock on effect that projects are either on hold or revised and that impacts on the whole supply chain.

"The survey confirms operators are seeking efficiencies but ultimately there is only so much you can do if you are to continue running a safe, environmentally-friendly ship.

"Eventually the exploration and production community have to keep producing and replacing lost barrels so at some point that capital expenditure will come back, albeit with much greater focus on improving efficiency.

"What we are seeing now in the oil and gas sector is replicated in the wider business world. Good, strongly financed and well managed businesses are looking at opportunities to strengthen their market presence while companies not in that category are fighting for survival and there will be inevitable casualties."

The completed research study will be published in September and October at a series of high profile events in Calgary, Aberdeen, Houston and Abu Dhabi.

Posted 03/08/09

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